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Amortizations For Everything

I started to recalculate my financial goals today. I broke out my goals for 1, 3, 5, 10, 20 , and 30 years. The goals were for net worth. My main focus is my 10-Year Goal. Within ten years, I want a net worth of $1,000,000 (with a ridiculous laugh and my pinky at the corner of my mouth)! Anyhow, I broke it out into liquid assets, retirement assets, real assets, and business holdings. My focus for today included liquid assets. For liquid assets, I broke it out into three categories, as well: cash, stocks, and bonds. I consider these all to be fairly liquid. Then, I wanted to figure out how much I need to start putting away to get to these goals. The answer is amortization.




You may have heard of amortization used with loans, especially mortgages. However, you can use amortizations for savings, as well. I wanted to input three items and find out a fixed amount I would need to save per month. Those three items include the rate of return, the length of time, and the goal amount. Given these requirements, I found an online amortization calculator that can work this way. I found it at the website for Time-Value Software.


Cash


For my cash savings, I want to have $10,000 in this account, within the next ten years. I currently save my cash in my HSBC Online Savings account at a rate of 4.80%. So, I made the "Deposit Amount" field blank and enter 10 for the "Number of Years", 4.8 for the "Rate of Return", and 10,000.00 for the "Savings Amount." Then, I hit calculate. It determined that I need to be saving $65.09 per month into my cash account, and I will have $10,000.00 in ten years. Pretty simple. However, I actually would like to be further along, sooner, and then back off of my contributions. For my one year goal, I want $3,000 in there. So with these criteria, I calculated that I need to save $244.55 per month. Still pretty easy.


It begins to get more complicated, however, because at three years, I want $5,000. So, I enter 3000 in the "Balance at Start Date" field, and then change the "Number of Years" to two (first year plus two more years), and the "Savings Amount" to 5000. So, for the following two years, I would need to save $67.56 per month. I did this same calculation for five years, and then did a revision for ten years. After the three years, I would need to save $99.35 per month for the next two years, and that would get me to $8,000. For the remaining five years, I would need to save anything to reach $10,000 after five more years. I will likely want to change these numbers around a bit, because I would like to gradually put less money in the cash account and not be on a bumpy ride.


Stocks


This one is very difficult to be accurate with, because you can not get a guaranteed rate of return with stocks. Further, this tool cannot determine dividend reinvestments, and such. However, you could pick some rate of return based on your own thoughts (8% on the convervative end, and up to whatever you decide on the more aggressive end). I won't bore you with these calculations. But, my goal is to have about $55,000 in stocks within the next ten years. At 8%, flat over the ten years, I would need $300.64 per month.


Bonds


These are pretty good right now, and somewhat liquid... depending on when you want to get to them. I am looking into I-Bonds from Treasury Direct. These are currently at 6.73% and are tax deferred. Flat over ten years, I would need to invest $205.23 per month to reach my goal of $35,000 in ten years.


None of these calculations take into account taxes or costs of investing. For instance, I use Sharebuilder to buy stocks, and it costs me $4 in on each purchase. So, the easiest way is to take your investment amount, and add the costs to it. And, with some simple addition, you will see that my goal for liquid assets is $100,000 in ten years. I have adjusted that considerably, as I wanted $1,000,000 in liquid assets before. However, I am not concerned as much with that if I can have decent cash flow from some personal business holdings.


Rounding out my ten years finances, I would like an additional $100,000 in retirement savings, $500,000 in real property (primary residence and a vacation property), and $300,000 in personal business holdings. I believe I would be able to retire, other than maintaining my personal business holding, within ten years based on these figures. All of this at the age of 35!



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